Finance Lobby Sees Transaction Tax Risk in Web Sales Bill

A U.S. Senate bill that would let
states impose sales taxes on purchases from out-of-state sellers
could lead to state-level financial transaction taxes, a Wall
Street trade association said.

“We believe the impact of this legislation on trade in
services has not been adequately explored by Congress,” said
Ken Bentsen, acting president and chief executive officer of the
Securities Industry and Financial Markets Association, said in a
statement released today.

“The bill could lead to unexpected costs being passed on
to consumers of financial services, including sales taxes on
services or state-level stock transaction taxes,” Bentsen said.

Professional services and financial products typically
aren’t taxed by states. Under the bill, states could expand
their sales tax bases and may have an incentive to look at
products and services predominantly purchased from out-of-state
sellers.

They would have to apply the same tax to intrastate
transactions. The bill removes one barrier because it allows
cross-state transactions to be taxed. For example, Alabama could
decide to tax legal services and apply the same rate to a
Birmingham resident’s local lawyer and New York-based estate
planner.

Between Businesses

Many states haven’t imposed taxes on services because many
of the transactions are often between businesses, said Helen
Hecht, chief counsel of the Federation of Tax Administrators, a
group of state officials.

“I can foresee the same kind of difficulties that states
historically” have encountered, she said.

The bill, S. 743, will have its first procedural vote
today. It is backed by retailers such as Wal-Mart Stores Inc. (WMT),
who say Internet-based business have an unfair edge, and opposed
by direct marketers and anti-tax groups who say it will give
state tax authorities too much latitude to reach outside their
borders.

Senators supported the concept of the legislation in a non-
binding 75-24 vote last month, and the Obama administration
endorsed the bill today.

“We believe that the Marketplace Fairness Act will level
the playing field,” White House Press Secretary Jay Carney told
reporters.

EBay Inc. (EBAY), which opposes the bill, has been sending e-mails
to its users, maintaining that the $1 million exemption for
small businesses isn’t large enough.

“Those fighting for this change refuse to acknowledge that
the burden on businesses like yours is far greater than for a
big national retailer,” John Donahoe, the company’s president,
wrote in the e-mail. “It may harm your ability to grow and
costs jobs, including yours.”